COMPETITION ACT 2004

Report
GREETINGS
TO
DELEGATES AND PARTICIPANTS
AT THE
SEMINAR ON ENHANCING
DEVELOPMENT THROUGH A
COMPETITION CULTURE
NEW DELHI
14 AUGUST 2008
1
DOMINANCE AND ITS ABUSE
Dr. S. CHAKRAVARTHY
(Profession : Civil Servant)
Formerly, Member, Monopolies and Restrictive Trade
Practices Commission, Member, High Level Committee on
Competition Policy and Law And Member of Committee for
Drafting the Law.
Presently, Adviser/Consultant
Competition Policy and Law
HYDERABAD, INDIA
Copyright - Dr. S. Chakravarthy
2
DOMINANCE IN
COMPETITION LAW
MANY COMPETITION LAWS ADDRESS
DOMINANCE AND ITS ABUSE
SO DOES THE INDIAN COMPETITION LAW,
NAMELY,
COMPETITION
ACT,
2002
(AMENDED IN SEPT 2007) .
EU HAS A PROVISION ON DOMINANCE
SIMILAR TO INDIA
Copyright - Dr. S. Chakravarthy
3
DOMINANCE



“DOMINANT POSITION” CAN BE AND HAS BEEN DEFINED IN
SOME COMPETITION LAWS IN THE WORLD IN TERMS OF THE
“POSITION OF STRENGTH, ENJOYED BY AN ENTERPRISE, IN
THE RELEVANT MARKET” WHICH ENABLES IT TO
(I) OPERATE INDEPENDENTLY OF COMPETITIVE
FORCES PREVAILING IN THE RELEVANT MARKET; OR
(II) AFFECT ITS COMPETITORS OR CONSUMERS
OR THE RELEVANT MARKET, IN ITS FAVOUR
THE INDIAN NEW LAW, COMPETITION ACT, 2002
(AMENDED IN SEPT 2007) FOLLOWS THIS
DEFINITION.
Copyright - Dr. S. Chakravarthy
4
DOMINANCE – MARKET

DETERMINATION
WHETHER
AN
ENTERPRISE HAS A DOMINANT POSITION
HAS TO BE WITH REFERENCE TO A DEFINED
MARKET

AN ENTERPRISE’S DOMINANT POSITION
HAS TO BE IN RELATION TO ITS POWER
WITH RESPECT TO THAT DEFINED MARKET
MARKET MEANS RELEVANT
MARKET
Copyright - Dr. S. Chakravarthy
5
RM = RPM + RGM
RELEVANT MARKET (RM) HAS
TWO DIMENSIONS, NAMELY,
*
RELEVANT PRODUCT
MARKET(RPM)
* RELEVANT GEOGRAPHIC
MARKET(RGM)
Copyright - Dr. S. Chakravarthy
6
PRODUCT MARKET
INTERCHANGEABILITY OR SUBSTITUTABILITY OF
GOODS/SERVICES BY CONSUMERS/PURCHASERS
1. DEMAND SUBSTITUTABILITY – SUBSTITUTES
CONSUMER WOULD SWITCH TO IF PRICE OF
PRODUCT INCREASES
2. SUPPLY SUBSTITUTABILITY – SUBSTITUTES
PRODUCERS WOULD SWITCH TO PRODUCE WITH
EXISTING FACILITIES IF CONSUMERS WANT
Copyright - Dr. S. Chakravarthy
7
RELEVANT PRODUCT
MARKET - FACTORS






PHYSICAL CHARACTERISTICS OR ENDUSE OF GOODS;
PRICE OF GOODS OR SERVICE;
CONSUMER PREFERENCES;
EXCLUSION OF IN-HOUSE PRODUCTION;
EXISTENCE OF SPECIALISED
PRODUCERS;
CLASSIFICATION OF INDUSTRIAL
PRODUCTS.
Copyright - Dr. S. Chakravarthy
8
RELEVANT GEOGRAPHIC
MARKET - FACTORS








REGULATORY TRADE BARRIERS;
LOCAL SPECIFICATION REQUIREMENTS;
NATIONAL PROCUREMENT POLICIES;
ADEQUATE DISTRIBUTION FACILITIES;
TRANSPORT COSTS;
LANGUAGE;
CONSUMER PREFERENCES;
NEED FOR SECURE OR REGULAR SUPPLIES OR
RAPID AFTER-SALES SERVICES
Copyright - Dr. S. Chakravarthy
9
DOMINANCE- IMPORTANT
FACTORS






MARKET SHARE OF THE ENTERPRISE
SIZE AND RESOURCES OF THE ENTERPRISE
SIZE AND IMPORTANCE OF THE
COMPETITORS
ECONOMIC POWER OF THE ENTERPRISE
INCLUDING COMMERCIAL ADVANTAGES
OVER COMPETITORS
DEPENDENCE OF CONSUMERS ON THE
ENTERPRISE
ENTRY BARRIERS
Copyright - Dr. S. Chakravarthy
10
DOES DOMINANCE REQUIRE AN
ARITHMETIC FIGURE?

SOME SUGGEST AN ARITHMETIC FIGURE OF
MARKET SHARE TO ASCERTAIN DOMINANCE

LOGIC IS AGAINST A THRESHOLD AS IT MAY
HARASS A GOOD COMPETING ENTITY AND ALLOW
AN OFFENDING ENTITY TO ESCAPE

AS LONG AS DOMINANCE IS NOT TO BE FROWNED
UPON, A GENERIC DEFINITION IS BETTER THAN
MARKET SHARE THRESHOLD DEFINITION
Copyright - Dr. S. Chakravarthy
11
ABUSE OF DOMINANCE
ABUSE OF DOMINANCE ARISES IF AN ENTERPRISE
• IMPOSES UNFAIR /DISCRIMINATORY PURCHASE OR SALE PRICES (INCLUDING
PREDATORY PRICES)
• LIMITS PRODUCTION,MARKETS OR TECHNICAL DEVELOPMENT
• DENIES MARKET ACCESS
• CONCLUDES CONTRACTS SUBJECT TO OBLIGATIONS HAVING NO CONNECTION
WITH THE SUBJECT OF THE CONTRACTS.
• USES DOMINANCE TO MOVE INTO OR PROTECT OTHER MARKETS
RELEVANT MARKET = RELEVANT PRODUCT MARKET + RELEVANT GEOGRAPHIC
MARKET
Copyright - Dr. S. Chakravarthy
12
THREE STEPS

FOR ESTABLISHING ABUSE OF
MARKET DOMINANCE, THE THREE
CRITICAL STEPS ARE
1. MARKET DEFINITION
2. MARKET DOMINANCE
3. ABUSE OF DOMINANT MARKET
POWER
Copyright - Dr. S. Chakravarthy
13
UNFAIR PRICING IS ABUSE OF
DOMINANCE




TELECENTRI IS A WHOLLY OWNED COMPANY OF THE MINISTRY
OF TELECOMMUNICATION AND POST IN GEORGIA WITH
EXCLUSIVE RIGHTS TO OPERATE THE COUNTRY’S
TELECOMMUNICATION SYSTEM.
CAUCASIA IS A TV COMPANY IN THAT COUNTRY USING
TELECENTRI’S NETWORK UNDER AN AGREEMENT TO TRANSMIT
TV PROGRAMMES IN THE CAPITAL CITY OF TBILISI.
ALL OF A SUDDEN, TELECENTRI QUOTED A VERY HIGH PRICE OF
US$ 100 FOR THE BROADCAST OF SERVICES ALL OVER THE
COUNTRY. CAUCASIA WAS INTERESTED ONLY IN THE
TRANSMISSION OF ITS PROGRAMMES INSIDE TBILISI (US$ 10).
THE STATE ANTI-MONOPOLY SERVICE OF GEORGIA (SASG),
AFTER AN ENQUIRY FOUND THAT TELECENTRI WAS VIOLATING
THE COUNTRY’S COMPETITION LAW AND WAS ABUSING ITS
DOMINANT POSITION AND DIRECTED THE COMPANY TO CEASE
AND DESIST FROM THE PRACTICE. UNFAIR PRICING IS ABUSE OF
DOMINANCE.
Copyright - Dr. S. Chakravarthy
14
LIMITING TECHNICAL DEVELOPMENT
IMPEDES FAIR COMPETITION





JAPANESE MANUFACTURERS OF PERSONAL COMPUTERS DECIDED TO INSTAL
MICROSOFT’S WINDOWS OS, WHICH CARRIED SOME AUDIO-VIDEO (AV)
FUNCTION IN THEIR COMPUTERS.
A LICENSING AGREEMENT WAS DRAFTED BY MICROSOFT, ENJOYING
DOMINANCE IN THE MARKET, INCORPORATED WHAT WAS KNOWN AS
‘IMMUNITY PROVISION’ IN THE AGREEMENT.
THE SAID PROVISION PROVIDED THAT THE LICENSEES WERE PRECLUDED
FROM SUING, PROSECUTING OR ASSISTING IN ANY JUDICIAL, OR
ADMINISTRATIVE PROCEEDINGS AGAINST MICROSOFT FOR INFRINGEMENT
OF THE JAPANESE MANUFACTURERS’ PATENTS.
SOME OF THE JAPANESE MANUFACTURERS OF PERSONAL COMPUTERS
OWNED PATENTS IN AV TECHNOLOGIES. BECAUSE OF THE ‘IMMUNITY
PROVISION’, THE JAPANESE MANUFACTURERS WERE BARRED FROM
ENFORCING THEIR PATENT RIGHTS AGAINST MICROSOFT, EVEN WHEN
MICROSOFT WAS FOUND TO BE EXPLOITING OR INFRINGING THEM
(PATENTS).
THE JAPANESE FAIR TRADE COMMISSION RULED THAT THE LICENSING
AGREEMENT WAS HAVING THE POTENTIAL OF CAUSING THE JAPANESE
MANUFACTURERS TO LOSE THEIR COMPETITIVE EDGE IN DEVELOPING THE
TECHNOLOGY RELATING TO THE AV FUNCTION AND THAT IT WAS IMPEDING
FAIR COMPETITION IN THIS AREA OF TECHNOLOGY. THE PROVISION WAS
DIRECTED TO BE DELETED FROM THE AGREEMENT.
Copyright - Dr. S. Chakravarthy
15
DISCRIMINATORY REBATES
AND ABUSE OF DOMINANCE

PRODUCTION AND DISTRIBUTION OF OXYGEN GAS AND RELATED PRODUCTS
WERE IN THE HANDS OF CEYLON OXYGEN LIMITED (COL) TO THE EXTENT
OF 80% OF THE MARKET.

IN 1993, INDUSTRIAL GASES (PVT) LIMITED (IGL) ENTERED THE MARKET AS
COL’S COMPETITOR. SOON IGL NOTED THAT COL HAD STARTED INDULGING
IN PRACTICES CONSTITUTING ABUSE OF ITS DOMINANT POSITION.

IGL COMPLAINED TO THE FAIR TRADE COMMISSION (FTC) OF SRI LANKA
THAT COL WAS RESORTING TO PREDATORY PRICING, EVIDENCED BY A
REDUCTION IN THE DEPOSIT FEE ON OXYGEN CYLINDERS FROM LKR 8500
TO LKR 3000 AND BY A DECREASE IN THE MAINTENANCE CHARGES FROM
LKR 75 TO LKR 55 AFTER IGL’S ENTRY. IGL POINTED OUT THAT COL HAD
ENTERED INTO AGREEMENTS WITH BULK PURCHASERS MAKING IT
COMPULSORY ON THEM TO PURCHASE THEIR ENTIRE REQUIREMENTS ONLY
FROM COL FOR AN AGREED TIME PERIOD. IGL FURTHER ALLEGED THAT COL
WAS OFFERING SUBSTANTIAL DISCOUNTS ON DIFFERENT TYPES OF GASES
AND CYLINDER CHARGES ON A DISCRIMINATORY BASIS.

FTC IDENTIFIED AND HELD THREE COURSES OF CONDUCT AS ANTICOMPETITIVE, NAMELY, PREDATORY PRICING, DISCRIMINATORY REBATES
AND
EXCLUSIVE
DEALING.
DISCRIMINATORY
REBATES
(OR
DISCRIMINATORY BEHAVIOUR) ARE AN EXERCISE IN ABUSE OF DOMINANCE.
Copyright - Dr. S. Chakravarthy
16
TIE-IN REBATE IS AN ABUSE

VALIO OY IS A FINNISH DAIRY PRODUCTS COMPANY HAVING A
DOMINANT POSITION IN THE LIQUID DAIRY PRODUCT MARKET IN
FINLAND.

IT HAD A REBATE ARRANGEMENT, IN TERMS OF WHICH, RETAILERS
WERE GRANTED DISCOUNTS/REBATES ON THE PRICES OF LIQUID
DAIRY PRODUCTS, ON THE BASIS OF THE AVERAGE VALUE OF ALL
THE PRODUCTS (LIQUID PRODUCTS, CHEESE, FATS, ICE-CREAM,
SNACKS AND JUICE) OBTAINED FROM VALIO.

UNDER THIS SCHEME, RETAILERS WERE FORCED TO MAKE ALL
THEIR PURCHASES OF LIQUID DAIRY PRODUCTS FROM VALIO,
WHICH HAD THE EFFECT OF TYING CUSTOMERS AND EXCLUDING
COMPETITORS FROM THE MARKET.

THE MATTER WAS CARRIED TO THE COMPETITION COUNCIL WHICH
CONCLUDED THAT VALIO WAS SEEKING TO CAPTURE THE MARKET
AND TO STRENGTHEN ITS MARKET DOMINANCE AND THAT TIE-IN
REBATE CONSTITUTED ABUSE OF DOMINANCE. IT IMPOSED A FINE
OF FIM 5 MILLION FOR HAVING COMMITTED THE OFFENCE OF
ABUSE OF DOMINANCE.
Copyright - Dr. S. Chakravarthy
17
PREDATORY PRICING


PREDATORY PRICING IS A PERNICIOUS
FORM OF ABUSE OF DOMINANCE
IT OCCURS WHEN A DOMINANT
ENTERPRISE CHARGES A PRICE BELOW
THE COST OF PRODUCTION WITH A
VIEW TO REDUCING COMPETITION OR
ELIMINATING COMPETITORS
Copyright - Dr. S. Chakravarthy
18
PREDATORY PRICING – MODERN
FOOD INDUSTRIES CASE (INDIA)




PREDATORY PRICING IS A GENRE OF
ANTITRUST VIOLATION
IT IS SELLING GOODS AT PRICE BELOW COST
WITH
INTENT
TO
ELIMINATE
COMPETITION/COMPETITORS
ACTION BEFORE MRTP COMMISSION AGAINST
MODERN FOOD INDUSTRIES PRODUCING
BREAD AND BAKERY ITEMS FOR THE OFFENCE
OF PREDATORY PRICING
COMMISSION RULED MERE CHARGING PRICE
BELOW COST CANNOT LEAD TO INDICTMENT MALAFIDE
INTENT
TO
ELIMINATE
COMPETITION/COMPETITORS
SHOULD
BE
PROVED
Copyright - Dr. S. Chakravarthy
19
AOD MILITATES AGAINST
ECONOMIC DEVELOPMENT






STUDIES CONFIRM POSITIVE
RELATIONSHIP BETWEEN COMPETITION
AND DEVELOPMENT(INDECOPI, DUTZ)
AOD LESSENS OR STIFLES COMPETITION
AOD MAY RESULT IN
MONOPOLY/OLIGOPOLY AND CHILL
INNOVATION
AOD MAY IMPLICITLY DISCOURAGE ENTRY
FOR NEW ENTRANTS
AOD DRIVES OUT WEAK AND SMALL
COMPETITORS (PREDATION)
AOD MAY THUS RETARD DEVELOPMENT
Copyright - Dr. S. Chakravarthy
20
AOD MILITATES AGAINST
CONSUMER INTEREST




AOD PREJUDICES COMPETITION
POSSIBLE MONOPOLY/OLIGOPOLY RESULTS
IN LESS CHOICE AND HIGHER PRICES FOR
CONSUMERS, PARTICULARLY POOR ONES
AOD CREATES BARRIERS TO ENTRY,
FORECLOSURE - AGAINST CONSUMER
INTEREST
AOD PREJUDICES CONSUMER WELFARE
Copyright - Dr. S. Chakravarthy
21
GUNNING DOWN AOD
DOMINANCE MAY NOT BE GUNNED DOWN
ABUSE OF DOMINANCE SHOULD BE
PREVENTING OR ELIMINATING AOD HAS
DIRECT AND INDIRECT IMPLICATIONS
FOR ECONOMIC DEVELOPMENT AND
CONSUMER INTEREST
Copyright - Dr. S. Chakravarthy
22
DIRECT BENEFITS

LOWER PRICES THRU COMPETITION

MORE CHOICE THRU NEW ENTRANTS

NEW AND BETTER PRODUCTS THRU
INNOVATION
Copyright - Dr. S. Chakravarthy
23
INDIRECT BENEFITS

OPTIMUM ALLOCATION OF RESOURCES

EFFICIENCY ENHANCEMENT IN
ENTERPRISES

TECHNICAL PROGRESS

ECONOMIC DEVELOPMENT
Copyright - Dr. S. Chakravarthy
24
FINALE
MODERN COMPETITION LAWS DO
NOT FROWN UPON DOMINANCE AS
SUCH BUT FROWN UPON ABUSE OF
DOMINANCE
Copyright - Dr. S. Chakravarthy
25
THANK YOU
FOR YOUR
KIND ATTENTION
Copy right Dr. S. Chakravarthy

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